Bilateral Investment Treaties
The necessity of Bilateral Investment Treaties came up with the technological improvements allowing the commercial goods to be transported easily around the world. Developing countries that are aiming to attract other countries to invest in their lands, sign or negotiate BITs to secure investors from potential economic risks. It can be said that the purpose of the Bilateral Investment Treaties according to developed countries is to obtain a legal protection for the investment and preclude non-commercial risks facing foreign investors in host countries. All of the BITs are signed reciprocal; thus they don’t explain which contracting party is the source of the investment or which one is the recipient.
Firstly, the USA negotiated and signed Friendship, Commerce and Navigation Treaties (FCNs) with many European states including France, Italy and Latin American States so as to improve and to protect foreign trade relationships with each other. Such treaties aimed to secure natural and legal persons. Even though these settlements were in favor of protecting the investors, they didn’t directly cover investment law. Following the necessity of the investment safeguards became clear, most of European countries commenced BITs with developing countries. The first BIT is signed in 1959 between Germany and Pakistan.By 1970 there were 72 BITs, by 1980 165, and by 1990 385. The numbers have grown faster since 1990, and the global total at the end of 2005 was put at 2,495. And it’s still spreading with a growing number. As we see in last 2 decades, BITs became viewed as a preferred type of international investment to regulate the bilateral treatment of foreign investments. Overall, at least 155 countries were parties to BITs, covering every continent. Turkey signed Bilateral Investment Treaties with 94 Countries. However, Turkey is a dualist country, where an international treaty should be ratified and announced to be a part of the national legal system. Within this regard, 74 BIT’s are effective out of 94 agreements today.
General Structure of Bilateral Investment Treaties
Most of the BITs have similar provisions and the following issues can be found: preamble, investment and investor definitions, treatment of investment, expropriation, compensation, currency transfers, subrogation and dispute settlement provisions. The preambles to International Investment Treaties set down the general objects and purposes of such treaties. They are legally not binding but helping for interpretation of goals and conditions of BITs though. Several of models can be found regarding preambles, but generally describe the desire to intensify economic corporation between the contracting states and recognition that encouraging and protecting investments will stimulate such economic corporation. They also provide substantive rights in favor of investors like fair and equitable treatment, national treatment, most favored nation treatment, full protection and security, protection from expropriation; also, compensation of losses, free transfer of payments, umbrella clauses, subrogation and duration.
BITs typically obligate both parties to provide “fair and equitable treatment” to the investments of other contracting countries’ investors. At a minimum “fair and equitable treatment” means no discrimination by nationality or origin, in respect of such matters as access to local courts and administrative bodies, applicable taxes and administration of governmental regulations. But the reason for the clause separate from the MFN and national treatment requirements, is to make clear that a minimum international standard of behavior applies to treatment of foreign investment even if no discrimination can be shown. The difference is exposed as the fair and equitable treatment obligation is set independently with no consideration given to the circumstances of the host country. On the other hand, most of the BITs include a protection and security standard that is also a part of fair treatment. Basically, contracting parties must defend the investor or investment against any kind of illegal national-international threats. All of the BITs give place to expropriation and compensation clauses that basically provide each party to agree not to take any measures directly or indirectly for expropriation or nationalization or any other comparable measures relating foreign investment made in its territory by nationals of the other contracting party. As an example a BIT between Turkey and China states that: “Investments made by nationals or companies of one contracting party in the territory of the other contracting party shall not be expropriated or nationalized or subjected to other measures having similar effect, unless the following conditions are fulfilled: i) The measures are adopted for public purpose, within the framework of its laws and regulations. ii) The measures are non-discriminatory.”
BITs generally provide each party to accord the foreign investor the same treatment that host state accords to its nationals. It can be shown as an example of a national treatment provision, that the BIT between Nigeria and Turkey: “Each party shall accord to this investment, once established, treatment no less favorable than thataccorded in similar situation to investments of its investors or investment of investors of any third country, whichever is the most favorable.
Along with giving no less favor treatment than they grant to investment to their own investors, national treatment provides a neutrality and equity. Thus it restraints the host state not to discriminate among investors based on their nations. On the occasions if a Most Favorable Nation (MFN) clause exist in a BIT, both of the contracting parties can benefit from other BITs more favorable terms that are signed between one of the contracting parties and other third parties. The question will arise whether the scope of MFN clauses in a BIT apply to dispute resolution provisions or not. Its basically possible for the investors to utilize MFN clause to establish jurisdiction over their investment disputes with host states, thus it appears to be as a controversial subject in ICSID arbitration cases. Turkey gives place Most Favorable Nation Treatment provisions in the BITs signed with most of the Western Countries.